Why Democrats and Republicans will never agree on health care

March 27, 2013

"Remember, anyone who attacks our Medicare proposal without offering a credible alternative is complicit in the program's demise," wrote Rep. Paul Ryan (R-Wis.) in the Wall Street Journal.

This is a key argument Republicans use to deflect criticism of their health-care plans. It's classic politics of conviction: You might not like what they've proposed, but at least they've proposed something. As Treasury Secretary Timothy Geithner used to say, "plan beats no plan."

On Tuesday, in the Roosevelt Room of the White House, Kathleen Sebelius, the secretary of Health and Human Services, and Alan Krueger, the chairman of the President's Council of Economic Advisers, laid out their plan: Medicare. Or, to be more specific, Medicare plus the Affordable Care Act.

This isn't, in their view, just a plan, or a theory, the way Ryan's premium-support proposal is. It's what we're already doing, and there's evidence that it's already working -- so why would we change course? If plan beats no plan, then surely ongoing success should beat untested new theory.

"Medicare and Medicaid are not the drivers of the health care costs," Sebelius said. "They are growing more slowly than the rest of the health care sector overall. That's been true for decades. Since the Affordable Care Act, they're growing much more slowly than private sector spending."

Economic Report of the President
Economic Report of the President

Since 2010, per-beneficiary spending in Medicare, after adjusting for inflation, has grown, on average, by one percentage point annually. Compare that to the five percentage-point annual growth between 2005 and 2009, or the 7.5 percentage-point annual growth between 1980 and 1984. If we could hold to anything like current trends, most of our budget problems would be solved.

Neither Sebelius nor Krueger could identify a clear mechanism connecting the Affordable Care Act, which mostly hasn't been implemented yet, with the slowdown in health-care costs.

The most suggestive evidence is the fairly sharp fall in preventable hospital readmissions, which have gone from about 20 percent of all Medicare patients to less than 18 percent. There's no reason the recession should change those numbers. But it's entirely plausible that hospitals are preparing for the Affordable Care Act, which docks their pay for preventable readmissions.

If there is, at this early stage, a broader connection between falling costs and the manifold cost-control efforts in the Affordable Care Act, that's the likely mechanism: Hospitals know what's coming and they're adjusting. No one can yet say whether that's actually the case. But given the extraordinary drop in costs of the last few years, Sebelius and Krueger argued, isn't the smart path to wait and find out? "If we could allow this progress to continue for awhile without interfering with the progress already underway," said Sebelius, "we'll know a lot more in a few years than we know now."

There is a sense in which the fundamental health-cost theories of Republicans and Democrats have become perfectly contradictory. Republicans believe Medicare is the singular problem contributing to the relentless growth in health-care costs, and the only way to truly fix our health-care system is to turn Medicare into a voucher system, breaking it up among private and public options and letting competition work its will.

Democrats look at the lower prices paid in single-payer countries as well as the lower prices paid by Medicare in this country and come away with a very different conclusion: We could be paying much less and getting much more, but the insurance industry, at the moment, doesn't have enough power via-a-vis hospitals and other providers.

Medicare, as the nation's largest payer, is thus the most promising solution to health-care costs, and Medicare should be using its bargaining power to lead the private market -- in particular, by persuading hospitals and other providers to make overdue, but difficult, reforms to how they deliver care.

One ongoing example is electronic health records, which were long resisted by providers, but are coming into wide use now not just because the federal government helped providers pay for them, but because Medicare is going to start docking the pay of providers who don't use them.

Therefore, for Democrats, breaking Medicare up into a mass of competing insurers removes one of the most powerful levers available for controlling health costs. "Medicare has enormous financial leverage to drive changes in medical practice," Sebelius said. It's not just that they think premium support won't work. It's that they think it would be actively harmful to the cause of cost control, and to do it right now, when medical costs are falling and the Affordable Care Act and all its Medicare-connected cost controls is just going into full effect, would be perverse.

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Sarah Kliff · March 27, 2013